The government is offering shares of Hindustan Copper at a floor price of Rs 155 against the closing price of Rs 266.30 on the BSE and Rs 266.15 on the NSE. This works out to a discount of Rs 111.30 or 41.79% on the BSE and Rs 111.15 or 41.76% on the NSE. The discount on the face of it looks huge. The important point is should investors buy at this price or avoid the issue.

The company reported its best ever profit of Rs 323.44 crs resulting in an EPS of Rs 3.5 for the year ended March 2012. In the first half of the current year ended September 2012 the reported net profit is Rs 91.71 which translates into an EPS of Rs 1 for the first half. The face value of the share is Rs 5. The floor price at Rs 155 translates into a historical PE of 44.28 while based on the first half results on an annualised basis a staggering 74.5.

The comparable company would be Sterlite which is a metals company and trades at Rs 97.15. Sterlite reported an EPS of Rs 14.36 for the year ended March 2012. The reported EPS for the half year ended September 2012 was Rs 8.75. Based on these earnings the share trades at a PE multiple of 6.76 times based on historical annual earnings FY12 and 5.55 times based on half yearly annualised earnings.

The government owns 99.59% of the equity and plans to reduce the holding in two tranches to 90%. The current offer is for approximately 4% and is for 3,70,08,720 equity shares and includes an option to sell an additional 5,17,14,580 Equity Shares. With poor floating stock currently and such huge stock offloading, prices are certainly going to correct. Buyers even at this huge discounted floor price of Rs 155 will have to be subscribed by obliging insurance companies led by Life Insurance Corporation of India. I would recommend that investors avoid this issue even at such a huge discount.